More good news for the UK economy this week as the government reveals further GDP growth – but the financial services sector is not making much of a contribution.
UK GDP grew by 0.6% during Q2 2024 according to the Office for National Statistics (ONS). This is undoubtedly positive news for the country at large and its various businesses and economic sectors.
Like many other nations, Britain suffered from a slowdown due to the COVID-19 pandemic, exacerbated by other political-economic factors such as Russia’s invasion of Ukraine.
Last year, the country entered a mild economic recession but managed to emerge from this short-lived slump earlier this year with growth of 0.6%, which the ONS reports has now been replicated this quarter.
“The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year,” said Liz McKeown, ONS Director of Economic Statistics.
However, the financial services sector isn’t adding as much to this growth as many stakeholders would hope, according to ONS stats. Out of 13 service sectors identified by ONS, ‘finance and insurance’ was one of two sectors to make a negative contribution in both quarters.
The contribution made by financial and insurance activities in Q1 and Q2 2024 (January-March and April-June), dropped to negative 0.3% and 0.1% respectively, despite the financial services sector being widely recognised as one of the UK’s most important.
On the other hand, the different quarters may also demonstrate some progress being made by British finance. The change from 0.3% to 0.1% means the sector did increase its contribution in Q2 from Q1, despite it remaining negative.
Should progress continue, finance may make a bigger contribution to economic growth further down the line. Given the extensive investment opportunities the sector presents, this would not be surprising.
Reports this year have indicated that Britain’s fintech sector is re-emerging as a destination for investors, whilst challenger banks like Monzo are also establishing themselves as key players in the international finance and payments fields.
Related tech spaces, like Artificial Intelligence (AI), are also gaining more and more investor attention. The investment the previous Conservative government pumped into this space, to the tune of £500m in last year’s Autumn budget, will also have helped in this regard.
The Labour Party, which earned victory in the July election, likewise earmarked finance as one of Britain’s ‘success stories’, in its manifesto. The party wants to see greater adoption of Open Banking to support economic growth, as well as greater regulatory support for financial innovation.
With the right levels of private investment and government backing, financial services could contribute much more to Britain’s economic growth. However, it’s not the only industry the country has and, as this week’s ONS figures suggest, it cannot be relied upon solely to drive much-needed growth.
